Guide to outsourcing
Introduction to outsourcing, offshoring and nearshoring
What are the diferencies between offshoring, outsourcing and nearshoring? And what does offshore outsourcing mean?
Outsourcing - contracting a business process to another party. It can be domestic, or international. The first wave of outsourcing included mainly blue collar jobs and was applied mainly in manufacturing. With the rise of the knowledge economy, more and more outsourced jobs became white collar. IT outsourcing started to bloom in the late 1990s with Asian countries being the most popular destination, seconded by the region of Central & Eastern Europe (CEE).
Offshoring - relocation of a business processes outside a company's own country. Big companies usually offshore internally and set up a subsidiary, while smaller companies usually mix offshoring with outsourcing local partners. This model applies to what Kurzor provides for clients in North America.
Nearshoring - relocation of business processes to a partner company in a nearby country, usually one sharing common borders. The obvious advantage is the geographical proximity and often the same time zone reducing the need to deal with time differences. This model describes outsourcing of PHP development to the Czech Republic from our partners in Germany and Austria, but also Great Britain and the Netherlands, where we have clients at present.
So, basically, if you are from Czech, working with us is outsourcing. If you are from abroad, it's offshoring or else offshore outsourcing or else international outsourcing. And if your country is near the Czech, it will be a nearshoring.
Factors influencing whether to outsource PHP development
Cost saving is usually considered the main reason why companies outsource. It’s by far not the only one though. Saving cannot be judged by just a simple equation of in-house developer salary minus invoicing from the outsourcing partner. Consider the whole cost structure, as shown below.
Outsourcing works best for mid level and senior postions where wages are high and experienced available developers are few in numbers. Consider an example of hiring a senior web developer in the U.S.:
Hiring - most data shows that hiring specialized talent can cost between 20 % and 40 % of annual salary. Let’s go with the lowest number and say it’s $16.400.
Salary - median pay for senior web developer in USA is $82.000 (as of September 2016). If you’re in San Fransicso area, this number might be up to 34% higher, whereas on the East Coast up to 18 % higher. Click here to see the current median wage.
Benefits - according to BLS average benefits like health insurance or retirement, make up 30% of total employee cost. That makes $24.600. Click here to read the official statistics.
Administration cost: a study from PwC found that the typical cost per year per employee adds up to $2.000 for mid-sized companies. As a company grows, the number goes down. Click here to read the study.
- Facility cost, hardware and software - a conservative number of $250 per employee per month totals $3.000 per year.
Outsourced dedicated developer
Hiring - 4 stage recruiting process, 20 hours of your executive time total, $50 per hour, $1.000 total
Cost - fixed
Administration - receiving invoice and clearing the payment - 12 hours of accountant time per year, $20 per hour job, $240 total
Comparison table between in-house developer and outsourced developer
Affordable short-term expertise
Another benefit of php development outsourcing is the option to bring a very talented developer for limited period of time in which he’s needed. If this need were be met by onboarding permanent member of staff, the risk would be too high for many companies.
Talented developers might be difficult to hire and the process can take three months, but also half a year or longer. All that time the company could and should be focused on creating value if it would utilized the option of short-term outsourcing as an option.
On the other hand, if you need a permanent member of your staff to grow with your company, outsourcing is definitely not for you.
Established companies using proven project management tools have little difficulties with the management of an outsourced developer. New companies or owners with limited experience can utilize seasoned project managers from the outsourcing vendor.
Management issues are usually listed as a one of the reasons why outsourcing doesn’t work. Bear in mind, that those articles mostly cover huge corporate developments that need to adhere to very strict corporate guidelines, regulations and other rules. When combined with outsourcing to countries with a different mentality and limited possibility of using advanced development management tools, risk runs high.
If there were one magic word that helps to offset most of the above mentioned issues, it would be the Scrum. It has proven over and over its immense value for delivering projects on time and in the expected quality.
While the Czech Republic is definitely not the cheapest country to outsource to, we have a great track record in technical sciences, engineering and also the IT sector. Best examples include Avast, ESET and AVG, three of the world's biggest anti-virus companies, all of which have roots in former Czechoslovakia and protect over 40 % of all computers on the Earth.
Czech PHP developers are independent thinkers who don't only take orders but are able to challenge the development requirements if they think there is a better way.
We are known as a nation of people who like to crack difficult problems and devise solutions with limited resources. Prime example of our national spirit is Otto Wichterle, who invented contact lenses and manufactured first prototypes during 1961 using a metallic construction set for children powered by a bicycle dynamo as his machine for moulding. That's resourcefulness!
The Czech Republic is a country based on Judaeo-Christian morals, influenced by western Anglo-Saxon culture. The wife of our first president Tomáš Gariggue Masaryk was born in Brooklyn, New York. When he proclaimed our independence after the end of WWI, he did so in the Independence Hall in Philadelphia, the same place where the U.S. declared its independence almost two centuries earlier.
Research on the values Americans live by proves that we share a lot of common ground and therefore are able to cooperate better while doing business than countries with radically different cultures. Cultural understanding for nearshoring partners inside the EU is obvious and an expected advantage.
While the same or a very close time zone is a clear benefit for nearshoring partners, clients from overseas really need to think over the time zone in which their partner operates. North America has difference from minus 9 hours on the West Coast to minus 6 hours on the East Coast.
Any time zone difference issue is best prevented by using complex project management tools like Asana and a well-defined development approach like SCRUM or agile.
Our developers usually meet with teams from the U.S. for several hours when our workdays overlap and then work independently on individual tasks. If the developer gets stuck and can't proceed without assistance or input from the client, there are usually fall-back tasks to make sure no time is wasted.
Getting started with development outsourcing
Types of outsourcing
Project based outsourcing
If you never outsourced before or if you never managed an international or remote team, you might feel unsure about handing over part of your business process to another company, moreover a remote one. If that's your case, then you should go for project-based outsourcing.
Project-based outsourcing means that we start working on simple tasks that may not have the highest priority for your business. Project management, communication and the development approach are similar to full-time outsourcing, but you manage the amount and type of work our developers do. Once you feel safe and you've tested what works for you in that setup, we can move on to more complex and difficult projects.
If you already know what you want, have experience with international collaboration and need full capacity and attention of one or more developer, then your choice is dedicated outsourcing.
In case of dedicated outsourcing, one or more developers are dedicated to working only for you, subject to your management and supervision. The developers are employed by us, provided with hardware, software and modern working environment. We can also offer supervision and management from our end.
If you have a very specific idea about who are you looking for, we will find, hire and outsource the best candidate to your specifications. Our process is as follows:
defining role, neccesary skillset, cost and duration of contract
creating appropriate job description
locating suitable candidates
testing their technical skills through our sample tasks
selecting suitable candidates for first interviews
testing technical skils on task given by you
psychological review and recommendations for management
trial period and onboarding
- start of contract period
How we get the best talents
Strong brand by working for various international clients, innovative projects and sound financial health ensuring stable earning opportunity for local talents
Good working environment, no big open space, maintaining friendly athmosphere
Rigorous candidate testing on technical skills as well as psychological review
Experienced HR personell and recruiting strategies
In case of dedicated outsourcing, we suggest you allow at least two or three months for preparations. Especially if you request senior or more experienced developers, there is a chance we won't have the perfect candidate available immediately.
Based on seniority, we are able to provide you with a list of possible developers within several weeks to two months. A professional HR specialist is a part of our team and we are constantly recruiting new talents.
Smaller projects or tasks under project-based outsourcing are usually covered by an existing team without any long waiting period.
Evaluation and onboarding
In case you request dedicated developers, we want you to feel comfortable before you commit. Therefore we employ this proven, three-step process:
First, we recommend you prepare a set of tasks with graduating difficulty to assess if a candidate is a good fit in terms of skills and competencies. After this initial evaluation you'll also have a better picture about the candidate's soft skills and ability to communicate and solve problems.
If the first stage is successful, we hire the developer for a trial period of no more than three months and he starts working for you. This period includes adaptation to a new working position, continuous evaluation and development of working standards that meet your specific needs. In addition, our specialist prepares a comprehensive psychological report on each candidate at the beginning of this stage.
After you see how the candidate performs within your team and what is being delivered, we can move on to the third step, which is a signed contract. The usual time span for the first contract to be signed is one year per developer. This period is long enough to do serious work and also short enough in case that your company needs to modify its strategy or refocus its effort elsewhere. While one year is the most common, it's obviously not the only possible option.
Video referral from happy client
Listen to Jono from London's digital agency Loft speaking about his experience with recruiting through Kurzor:
On-site visits (or Inspections!! :-)
We love them! :-) If you wish to check out our team and make a trip to Brno, we'll be very happy to host you. The Czech Republic is famous for great and astonishingly cheap beer, beautiful women, and some great architecture. There are direct flights to Brno from London Stansted and Luton as well as Eindhoven (and they are cheap – check out Ryanair and Wizzair for schedules and fares). Prague and Vienna airports are within two hours of ground transport for passengers originating from elsewhere.
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Petr specializes in marketing and sales.